How securities and investment firms can reduce costs and boost efficiency

February 04, 2025

In the face of increasing regulations, risks and digital expectations, it is costing more for buy- and sell-side firms to put money to work. Automation provides a solution, and by consolidating and integrating your technology landscape, you can reduce your overhead and extend your competitive edge. So, what’s stopping you?

Costs are climbing higher

In the highly regulated capital markets industry, the need to manage rising instances of fraud, as well as cyberrisks, is increasing costs. Compliance with know your customer and anti-money laundering regulations is a critical part of the investor onboarding process but takes time and effort that can drain resources.

Clearly, there are macroeconomic risks to manage, too, as inflationary pressures and fluctuating interest rates continue to cause uncertainty. But at the same time, there is a growing expectation to deliver real-time processing and analysis of data 24/7 with 100% accuracy.

That is a lot to ask of any business, and without the right technology strategy, it is becoming much more expensive to achieve. And in fiercely competitive sectors like banking and lending, where firms largely offer the same products, you can’t afford the constant squeeze on your margins.

Something must give, but IT landscapes across the industry are proving stubbornly resistant to change.

Systems are stuck in a rut

Inertia stops many firms from modernizing their operations to reduce costs. When a technology team has been operating in a certain way for many years, its practices can become deeply entrenched, making it harder for operations to evolve.

Rather than improving efficiency with ready-made software, IT teams will often invest in building their own technology, even for processes that won’t differentiate their firm from its competitors or add value for its customers.

As they grow, firms also tend to invest in point solutions for every new process they need to support. Whether these systems are homegrown or purchased from third-party vendors, the result can be a complex “spaghetti ball” of technology that is difficult to unwind, costly to maintain and detrimental to automation.

Poorly connected solutions typically require a higher degree of manual intervention and, ultimately, more human resources – the biggest contributor to operational costs. The firms that can automate the most processes from end to end will be better placed to lower their expenditures, offer more competitively priced services and grow their businesses.

Consolidation is the answer

Many financial organizations operate hundreds of solutions from different vendors, which all must integrate with one another and pass data back and forth. To be more efficient, cost-effective and competitive, these firms need to simplify and streamline their technology environments.

The challenge is to eliminate the superfluous and minimize complexity. The fewer systems you run – from fewer vendors – the fewer integration touchpoints and databases you will need to manage, and the more radically you’ll reduce your costs. In short, it pays to meet as many technology requirements as possible with a single partner.

However, the costs of migrating to modern systems can still be prohibitively high. So, you also need a technology partner that has built its own testing and migration hubs and can automate the bulk of the migration process.

C-level executives see the big picture

Even with high levels of automation, technology consolidation can’t happen overnight, and cost reduction strategies take time to pay off. Before your organization can turn inertia into action, you require the backing of your most senior executives.

C-level leaders understand better than most the importance of taking the long view and looking beyond the organization to achieve strategic objectives. The 2024 FIS^® Global Innovation Research¹ collected insights from 2,000 executives at financial firms and corporations.

74% of C-level executives report the high impact of cost reduction initiatives that include outsourced managed services, compared to just 65% of other business leaders. ¹

While the latter may be reticent to invest in consolidation and renounce the status quo, the former is more likely to take the leap into a long-term digital transformation, led by an external technology partner. Cost reduction takes vision, and with senior-level buy-in, you’re more likely to achieve the right results.

US landscapes lag behind

As cost reduction strategies take effect for firms across Europe and Asia, U.S. organizations are generally at an earlier stage of their transformation.

Around 75% of leaders from the U.K. and Singapore view the integration of cost reduction strategies as highly impactful to their firms, representing the highest level of agreement among all countries.¹

Conversely, only just over half (54%) of leaders in the U.S. report a high impact from cost reduction initiatives. And 16% regard cost reduction as having little to no impact, indicating the highest level of dissent when compared to other surveyed countries.¹

On reflection, though, the disparity makes sense. The U.S. has long been slower to automate core financial processes, with check payments still common – if not mandatory – for large, important purchases such as a house or car. Real-time payments, too, have been introduced later in the U.S. than the rest of the developed world.

And while global trading is the norm for European and Asian financial institutions, their counterparts in the U.S. often stick to the country’s huge domestic trading market. With just two major stock exchanges rather than hundreds to manage, they still need to automate more trading processes to improve efficiency and reduce their costs. But it is less of an urgent priority.

Again, however, it is critical to look beyond the short term. As automation becomes more key than ever to competitive advantage, can you afford to delay your transformation much longer?

How to innovate fast enough to compete

To innovate successfully, you need the right processes, people and infrastructure, says Tony Warren, SVP, Strategic Innovation, FIS.

Opportunities are out there for the taking

The more that digital technology advances, the more ways it gives capital markets firms to both save money and help it work harder.

Automation, powered increasingly by artificial intelligence, is helping eliminate many of the manual tasks that cost companies so dearly. And the cloud not only provides the capacity to run digital tools, but also reduces the operational overhead and effort of running them in-house through managed services.

However, there’s more to modernization than just cutting costs. With next-generation cloud-based technology, you also get opportunities to add value for customers and increase your own revenue.

Consumers want more control over their finances and investments, so give them the front-end solutions that allow them to do more and save your back office the costs of, say, reconciling data or issuing reports.

Plus, there is no limit to the tools you could offer your corporate customers as a service, from supply chain finance solutions to climate risk testing systems.

Costs may keep rising for your competitors. But with streamlined technology on your side and the right strategic partner, you can keep your expenditure down and increase your competitive advantage. The time is now to invest in digital transformation and nothing should stand in your way.

¹FIS, Global Innovation Research 2024 surveyed 2,000 firms across financial services and other industries in the U.S., U.K., Singapore, Hong Kong and Australia.